Over the years, I’d been relatively agnostic on gold. I used to favor stocks over all other asset classes just given the long term returns, volatility and underlying fundamentals. Then I started to consider my very high concentration in equities and branch out a bit. First off, I got into rental real estate at a local college campus. I figured the steady income mixed with a purported inflation hedge would be a good diversifying component with no correlation to stocks. As it turns out that investment hasn’t really provided income as of yet as we’ve had a few bouts of bad tenants, an empty unit, etc. We’ve paid down the principal, but no income. Then, there are the other alternative investments to consider.
Gold Timing and Diversification
I did enter into the gold asset class through the GLD ETF a few years back. It’s done OK and it’s up, even in spite of this year’s pullback. The ETF was a bit of a lazy man’s approach in that it was easy to get into but has its share of drawbacks. For one, many people question whether the underlying custodian actual owns anywhere near the amount of gold that the net asset value represents. Next, there’s an annual expense ratio and there are transaction costs and taxes in and out. For these reasons, many people look to physical gold from sources like Bullionvault.com.
If there’s one thing I’ve learned about gold in recent years it’s that while many people feel it defies logic to continue to increase in value for what they cite as a lack of real-world utility, it still does nonetheless! Why? It’s finite. Other things are finite as well, and they tend to increase in value also – primarily commodities. But take another new “class” which has gained in popularity recently. Bitcoins. I view this electronic currency as much more troublesome than any commodity, yet somehow, they have grown tremendously in value and popularity over the years as well. There’s something about a proven finite limit to a particular good that drives prices higher, even if the real-world utility is somewhat questionable. At least gold has millenia of history behind it as a currency and store of value. Personally, I’m not one to mortgage the house and buy nothing but gold since I want diversification and steady income. However, I’m glad I did buy some. It has zigged when the market has zagged and in the event of a major calamity or hyperinflation, I do look forward to the day when I can sell it at a decent profit and reinvest in a bargain stock opportunity.
What Are Your Thoughts on Gold?